Price risk intermediation in the over-the-counter derivatives markets: interpretation of a global survey

In April 1995, central banks in twenty-six countries conducted a global survey of the financial derivatives markets' size and structure. The authors' analysis of the survey results suggests that at the time of the survey, dealers in the aggregate assumed only small exposures to price risks in meeting end-user demands. In addition, despite the derivatives markets' large size, potential price shocks there would still be appreciably smaller in scale than price shocks in the cash markets. Thus, the overall effect of derivatives markets may be to modify and redistribute exposures to price risks in the financial system, rather than to leverage those exposures.